The interim budget has proposed a change in Section 87 A for the financial year 2019-2020. There is a slight change in the tax rebate.

What are the current Provisions in Section 87 A of Income TAx Act?…

According current rules, if you are resident individual and your total income after all eligible deductions is equal to or less than 3.5 lack then a tax rebate of Rs.2,500 applies to the total tax payable before 4% educational cess.

If you tax payable is less than Rs.2,500 then the entire amount is discounted.

Revised Tax Rebate under Section 87 A(F.Y 2019-2020)…

Revised Tax Rebate under Section 87 A(F.Y 2019-2020)…

Hence, if your taxable income after all deduction is equal to Rs. 5L or less, then from the tax payable before cess, an amount of Rs. 12,500 will be discounted.

Example How Section 87 A will work?…

Your total annual income is Rs. 7.25 L

All eligible deductions like 80C+ 80D + others = 2.25L (for example)

Net taxable income = 5 lack

Old rule: Net tax before cess: 12,500 and 13,000 with cess.( 250000*0+250000*5%)

New rule: Net tax = 0. So the saving = Rs. 13,000

Your total annual income is 8 lack

Net taxable income after all deductions is 5.5L

Old Rule: tax payable before cess: 22,500 and Rs. 23,400

New Rule: tax payable before cess: 22,500 and Rs. 23,400. There is No saving. The rebate will apply only if the net taxable income is equal to less than 5 lakh.